The transition from GAAP to IFRS raises special issues for U.S. Government contractors, according to William Keevan, senior managing director of Kroll Inc. "These issues stem from the impact that contractors' accounting practices, and changes to those practices, have on their contract costs, prices and profitability," says Keevan.

In an interview with IFRS Reporter, Keevan noted that the Federal Acquisition Regulation (FAR) sets forth the principles governing the reimbursement of costs incurred by government contractors. The Cost Accounting Standards Board (CASB) sets forth the rules for cost measurement, assignment to accounting periods and allocation to contracts.

While not entirely consistent with GAAP, both the FAR cost principles and CASB standards do intersect with GAAP to a certain degree. For example, these regulations sometimes cite specific GAAP pronouncements or require contract cost accounting practices to be consistent with the contractor's financial reporting practices. Lease costs, certain insurance premiums, refunds or dividends retained by the contractor's insurance company, depreciation costs and, in certain circumstance, postretirement benefits other than pensions are some examples of such costs.

" To the extent that the transition to IFRS requires changes to a contractor's cost accounting practices, the implications for the contractor will depend on how the government views those changes. Whether the government determines a change to be "required", "unilateral" or "desirable" as defined inthe regulations will determine whether contract costs and prices are adjusted upward or downward as a result of the change. This, in turn, can affect the contractor's profitability. For example, under the applicable regulations a contractor may unilaterally change its disclosed or established cost accounting practices, but the government will not pay any increased cost, in the aggregate, as a result of a unilateral change," Keevan says.